International trade - Essay Example

Download file to see previous pages... The theory of comparative advantage insinuates that reducing trade limits (trade liberalization) and opening up global markets would lead to benefits from trade for all parties concerned. However, the theory is one thing, getting nations to agree to break down complex trade obstacles they have put up over the years is another thing altogether. Taking this complexity into account, how is it possible to know that countries that claim to have relaxed their trade restrictions actually have? Even if it is possible to confirm that this has happened, is there any evidence to ascertain that trade liberalization actually brings benefits to the developing world, where problems arising from the difficulty of penetrating the markets of the developed world are very grave? This paper aims to answer this question and more. Key words Trade liberalization, protectionism, trade barriers, tariffs, quotas, comparative advantage Most studies (extensive and comprehensive studies going back as far as the 70s and 80s, and more recent (though less reliable) ones conducted using cross-country regression analysis) strongly indicate that countries that have more liberal trade laws grow faster and have more open economies compared to those that have more protectionist policies (Buffie 2001, pg. 15). Since 1980, the PCIs of third world countries that have a combined population of over 3 billion people have doubled; this is according to figures released by the OECD and the World Bank. In addition to this, they have managed to slash, by more than 30%, their mean import tariffs, as well as almost tripling their ratios of trade-to-GDP. This means that only third world countries that are less developed, have combined populations of less than 2 billion, whose trade-to-GDP ratios and PCIs are stagnant, and who have insignificant decline in mean import tariffs, are left. Unlike the rest, the new globalizers have also witnessed dramatic improvements in welfare indicators and significant reductions in poverty. A lot has been made of the World’s Bank’s decision to revise its approximations of future effects of trade liberalization. They are not unimportant. However, trade liberalization only is not a panacea (Okamoto 2004, pg. 46). In order to fully realize productivity benefits, external liberalization should be integrated into comprehensive market-based reforms and be supported by institutional reforms that buttress markets – just like David Hume and Adam Smith indicated more than 2 centuries ago. The main point however remains that richer developing countries are those that have carried out massive liberalization of foreign direct investment (FDI) and external trade as a part of a broader move towards market economies (Vietnam and China are the perfect examples). So much for the very fallacious view that high protection in Vietnam and China has not stifled fast growth and has in fact triggered it. Should only developed countries liberalize trade during the Doha round? Northern trade limits suppress exports from labor-intensive developing countries, and are therefore very iniquitous. However, what groups like Oxfam do not say is that the protectionist policies of developing countries hurt them even more (Rogowsky & Linkins 2001, pg. 37). Such liberalization would benefit unskilled rural labor ...Download file to see next pagesRead More